Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Government Intervention Distorts Market Prices and Results in Inflation

Interest-Rates / Market Manipulation Apr 25, 2008 - 02:00 PM GMT

By: Peter_Schiff

Interest-Rates

Best Financial Markets Analysis ArticleThose unfamiliar with marketplace dynamics may not recognize how government activity has created price distortions across our economy. But when these chains fail to restrain the market, the underlying forces become easier to see. 

Much as government mandated easy credit propelled home prices to bubble levels, similar forces pushed college tuitions up to the stratosphere. Both systems are currently breaking down along similar lines. 


In light of the staggering cost of college education today, it may seem unbelievable that my father in the early 1950s was able to finance his own education with a summer job waiting tables. Like most in his generation, eight weeks of work per year allowed him to graduate debt free.  In contrast, the debt burden now heaped on today's college graduates is so oppressive that the financial challenges are becoming a palpable psychological strain on an entire generation.

The irony is that without easy access to student loans, which have been touted as a means to ease college affordability, tuitions never could have risen so high in the first place. Sadly, it is not students who have benefited, but the educational establishment that receives the proceeds.  Colleges collect huge sums of money up front while students get saddled with staggering balances.

Now that repaying loans has become increasingly difficult for home buyers and students (especially since the home equity well has run dry and the employment market has cooled), more debtors are defaulting.  As a result, the market for securitized loans, which has completely dried up in the mortgage market, is now equally desolate for student loans. Here again, the government is being asked to pick up the slack by buying existing student loans and issuing new loans directly to students.

In so doing, the government is helping to sustain high tuitions just as similar actions are working to prop up real estate prices.  If the government stayed out of the student loan market, students would not be denied educations.  Colleges and universities would simply be forced to offer affordable tuitions or go out of business --just the way they used to back in my father's day.  Similarly, if the government allowed real estate prices to collapse, Americans would not have to take on so much debt to buy houses.

To buy up all of these loans, the Fed is running the printing presses non-stop.  As a result, prices of other goods, such as food and energy, are spiraling out of control.

Of course, mainstream Wall Street firms and the conventional financial media do not see this obvious connection.  While CNBC searches the world for clues to this “mystery”, no one sees the evidence “hiding” in plain sight.  Higher prices simply result from all the money printing, both by the Fed and foreign central banks trying to maintain currency pegs to a sinking dollar. 

It is amazing how those who were completely blindsided by the surge in food prices are now so quick to come up with ridiculous reasons to explain the phenomenon.  However, for those of us who actually understand what inflation is, predicting the current surge in food prices was a no brainer .  Read one of my commentaries from Oct. of 2006 and see for yourself .

Similarly, analysts are blaming $120 oil on the hidden machinations of greedy speculators. They buttress these claims by noting that absent a bona fide oil shortage, current prices are not justified by fundamentals.  This overlooks that while there is no shortage, there is also no surplus. The market is in perfect equilibrium at today's price, and recent spikes merely reflect the substantial increase in global money supply.  If today's prices really were artificially high, like house prices, they would be a glut of oil in storage facilities while users, priced out of an inflated market, cut back on their consumption (This is precisely what is happening in the real estate market).

As consumers are getting wise to inflation, they are beginning to stock up on those products showing the most rapid price increases.  This week, Cosco and Sam's Club began to limit bulk purchases of rice.  After all, if you have the cash why not by the things you know you will need in the future now, before the prices go any higher. My guess is that if home storage were possible, consumers would be buying as much gasoline and home heating oil as they could currently afford…they might even load up their credit cards to do so.  After airfares (which unfortunately cannot be stockpiled), apparel may be next major category of goods that will experience rapid price increases.  Why not buy a few extra pairs of socks while they are still cheap? 

As the government creates more inflation, and prices for all sorts of consumer goods spiral upward, the autho rities, as they always have, will institute price controls and other forms of rationing of consumer staples.  My advice is to stock up now, before you end up having to spend hours waiting in line.

For a more in depth analysis of the inherent dangers facing the U.S. economy and the implications for U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in